IN recent weeks, Pakistan has been stalked by bad economic news:

a tough IMF package, revenue shortfalls, sharp rupee depreciation,

stagnant exports, reduced foreign investment, and, to top it all, no
oil or gas at Kekra.

Not surprisingly, the opposition parties are portraying these discouraging

developments as the consequence of the PTI government’s missteps and
mismanagement. But the fault is not entirely within us. Almost all emerging
markets are facing a slowdown due to dollar appreciation and higher interest
rates, the uncertainty and protectionism generated by the US-China trade war,
and the growing geopolitical threats to global economic stability. Emerging
markets, including Pakistan, are expected to grow next year at an average rate
of four per cent.

The government’s earlier effort to find alternative or supplementary sources of

financing to the IMF was understandable. At the time, the IMF was asking for
a free float of the rupee. And, the US had raised objections to China’s CPEC
financing.

While the economic prognosis is not rosy, it does not spell

doom or disaster.
The package which is now likely to be concluded with the IMF will, no doubt,
contain some tough conditions. However, two major concerns have already
been largely addressed. First, the rupee has depreciated close to what is
considered its present ‘market’ value. Second, the US objections to CPEC
financing have been mitigated by Pakistan’s facilitation of the US-Taliban
talks.

The $6 billion IMF package, though modest, will enable Pakistan to raise
concessional financing from the development banks and borrow on the bond
markets at reasonable rates. The smaller IMF package may also ease
Pakistan’s expected effort to wean itself away from IMF supervision as soon as
possible.

The IMF’s targets for reduction of the fiscal and current account deficits will
impose constraints on economic growth and socioeconomic programmes
risking public ire and further fire from the opposition and a critical media.

Yet, while the economic prognosis is not rosy, it does not spell doom or
disaster.
Several of the structural measures prescribed in the IMF programme, such as
bringing the fiscal and current accounts into balance, are actually essential for
the long-term health of the Pakistani economy and should be implemented
regardless of the IMF.

The manner in which the fiscal and trade accounts are balanced is largely up
to the government. In reducing the fiscal deficit, it can place primary focus on
raising revenues rather than eliminating vital socioeconomic programmes.
Pakistan’s tax-to-GDP ratio can be raised from the present 10pc to the norm of
18pc, provided the government is prepared to take politically difficult
decisions, such as bringing agriculture and the retail sector fully under the tax
net and plugging revenue leakages.

The hundreds of mostly loss-making state-owned enterprises bleed the

exchequer of around 2pc of GDP each year. If these SOEs are urgently
restructured and/or privatised, this alone would enable Pakistan to meet the
IMF’s fiscal reduction target. Perhaps the simplest way to restructure and,
where advisable, divest these enterprises is to hire one or more specialist firms
to undertake the exercise. Several countries have done so successfully.

Further, if austerity is to be imposed, it should not fall on the shoulders of the

poor. The burden of austerity should be borne mainly by the nation’s affluent
classes whose profligacy has brought the country to the present economic
pass.

Differentiated austerity could encompass measures such as: higher gas prices
for upper-income households, higher duties and taxes on luxury or larger cars,
car pools and alternate driving days to save on oil consumption, higher
property taxes on larger homes, higher taxes on air travel, luxury taxes on air
conditioners. Digital technology can enable efficient implementation of
differentiated austerity.

A substantial part of the government’s expenditures could be deployed for

pro-poor programmes including: financing and support for food, housing,
health, education and transport for the country’s 60 million ‘poor’.

Considerable financing for some of these programmes could be generated by

‘monetising’ government assets, like land for housing; and raised from
development and charitable institutions and through public-private
partnerships. Such investments in social and human infrastructure are
essential to create the foundations for future robust economic growth.
Balancing the external account will be challenging as well. World trade has
declined by almost 2pc last year due to the increasingly protectionist and
uncertain trade environment. Export opportunities for developing countries
have shrunk significantly.

Pakistan’s manufacturing sector is puny, contributing only 11pc of GDP, and

its products — mainly textiles — are low end and uncompetitive. The sharp
rupee depreciation should level the playing field against Indian and
Bangladeshi competitors. Unfortunately, Pakistan’s yarn and fabric producers
have shied away from and, at times, obstructed investments for value addition
in textiles and clothing. They should be challenged to invest in modern plant
and machinery and join the global supply chains to enlarge export volumes
and earnings.

The government also needs to ignore false Western free trade rhetoric and
offer tariff and other protections to nascent manufacturing industries
(electronics, machinery, consumer durables, chemicals, steel and other
industries), especially to SMEs, and thus reduce the import bill and build
capacity for future exports.

The US-China trade war may offer Pakistan a unique trade opportunity. Faced
with huge US tariffs, many Chinese manufacturers are likely to move
production, at least of labour-intensive industries, to other developing
countries. The relocation of these Chinese industries to Pakistan should be a
prime objective of CPEC’s Special Economic Zones.

Pakistan’s economy has underperformed mainly because it has been cash-

starved and constrained by policy and execution inefficiencies. Its high growth
potential resides in the pent-up demand for consumer and durable goods and
health, education and other services; in the unexploited domestic and export
potential in agriculture, mining, textiles, industrial goods and other sectors; in
the country’s huge infrastructure requirements and in its undervalued assets
and companies.

— despite the bureaucratic and systemic hurdles that await them.

The writer is the author of Brokering Peace in Nuclear Environments: US

Crisis Management in South Asia.